The Hong Kong Monetary Authority (HKMA) has warned that stablecoins could undermine the Hong Kong dollar in a recently released discussion paper about its retail central bank digital currency, e-HKD. 

The HKMA today issued a discussion paper, outlining the policy and design issues involved in the introduction of e-HKD, and encourages the public and industry to participate in the consultation and share their views. Find out more: https://t.co/GndjuZ2Pay pic.twitter.com/hRz2noD0Ps

— HKMA 香港金融管理局 (@hkmagovhk) April 27, 2022

Many in the crypto industry believe that interest in developing central bank digital currencies (CBDC) has been in response to the rise of private-sector stablecoins. This discussion paper appears to confirm that view.

“With continued developments in stablecoins, it cannot be ruled out that a popular stablecoin may eventually emerge,” wrote the HKMA as part of the “e-HKD: A Policy and Design Perspective” discussion paper released on Wednesday.

“In a scenario where the use of these stablecoins becomes widespread […] the role of the domestic currency as the single unit of account could be undermined.”

The authority also highlighted risks that such stablecoins could undermine payment integrity due to operational or financial failures or allow for greater ease of capital flight during a financial crisis period, which would undermine the control of central banks over the local economy.

The HKMA first announced its plans to study a retail-focused central bank digital currency in June 2021 as part of its “Fintec 2025” strategy….